Taxing foreign home buyers in the skyrocketing Toronto real estate market could trigger a national recession, according to one of the city’s most prominent condo developers.
The warning has already been dismissed as “preposterous” by one of the top economists in Canada.
In an email sent to unit owners in his 17 buildings late Tuesday, Brad Lamb railed against the long-debated idea of a 15 per cent surcharge on buyers of Toronto properties who are not Canadian citizens or permanent residents; similar to the one imposed in Vancouver in August 2016. Boasting of having “eaten, drank, and slept the Toronto real estate marketplace for 30 years,” the CEO of Lamb Developments argues such a tax would be “an egregious error in policy.”
“In Toronto… it could also precipitate a Canada-wide recession,” Lamb wrote near the start of his roughly 1,300-word note.
“Kill the new condo market, kill the Ontario economy. Kill the Ontario economy and Canada falls too,” Lamb wrote.
He does acknowledge Toronto home prices – which in some areas have soared by more than 30 per cent in the past year alone – have been “rising too quickly.” However, Lamb claims that growth will “naturally outrun” itself in a year or so.
Asked to respond to Lamb’s warning, BMO Capital Markets Chief Economist Doug Porter called it “preposterous.”
“And I have eaten, drank and slept the Canadian economy for more than 30 years,” the economist added in a thinly veiled swipe at Lamb’s capacity to speak with authority on the matter.
Toronto new housing construction accounts for one per cent of Canada’s gross domestic product, notes David Madani of Capital Economics.
“Accordingly, a moderate slowdown in Toronto housing construction wouldn’t put the entire economy into recession,” Madani told BNN via email. “It would take a much broader negative shock to national housing investment and personal consumption to put the whole economy into recession.”
“I find it amazing how for years, real estate experts told us that the foreign investor element was trivial in the market,” BMO’s Porter told BNN via email on Wednesday morning. “And yet now such a tax could trigger a recession, on the national economy?”
“Which is it? Trivial or critical? And if [Lamb] is correct, how did we ever let it come to this?” Porter asked.
The answer lies at least partially in a complete lack of data on the foreign homebuyer element. No official figures exist on how many homes in the Greater Toronto Area are being purchased by people who do not live or work in the GTA.
Ottawa earmarked $500,000 in last year’s federal budget for Statistics Canada to investigate the matter and provide some reliable information on which to form policy. Yet so far, no progress has been made, prompting veteran Bay Street money manager John Stephenson to recently describe the ongoing lack of Toronto real estate data “a disgrace.”
Some recently conducted informal surveys – such as one of local real estate agents working for Royal Lepage – suggested foreign buyers represent just five per cent of Toronto home purchasers. Yet even Lamb argues the true figure is likely far higher.
Based on what he describes as “real world” experience and knowledge (quotation marks are his), Lamb says foreign buyers represent a “significant percentage” of those purchasing both single family homes worth $4 million or more as well as new condos sold from floor plans.
“Ask any real estate agent that lines up for open houses… you will quickly find out that the buyers are almost entirely local end users,” Lamb argues.
Vancouver home prices have fallen by double-digits on a year-over-year basis in the roughly eight months since the province’s foreign buyer tax was first imposed, yet Lamb claims such results are only temporary.
“We will see rising prices in Vancouver within 3-12 months as consumers regain confidence in a city with no supply,” he wrote. “Nothing will stop Vancouver’s rising prices except more supply.”